Looking to invest in IPOs? Here’s how to pick winners and spot the duds

• Paytm, PB Fintech (Policybazaar), Cartrade Tech and many others are among IPOs that lost much of investors’ money after listing.
• 83 companies went public on stock exchanges since 2021.
• Analysts say that retail investors should study the company profile, financials, corporate governance track record in comparison to their competitors before making a bet.

In the last two years, 83 companies listed on stock exchanges and some of them have destroyed investor wealth.

Investors have made fortunes by investing in IPOs since 2020, but some of them have destroyed wealth. Out of these companies, only 30 companies are trading below their issue price right now. The rest have remained true to investors.

Paytm, PB Fintech (Policybazaar), Cartrade Tech and many others are among IPOs that lost much of investors’ money after listing. One thing common among some of these IPOs is that they are new-age companies with less industry track record to rely on.

Here are top 10 IPOs that are highly below their issue price

So the question is — what are the parameters that need to be checked before investing in an IPO?

Analysts say retail investors should study the company profile, financials, corporate governance track record in comparison to their competitors before taking a bet.

“Before investing in an IPO and to avoid major losses, retail investors need to study the company’s filings which are on public domain, look at their corporate governance practices, financials, debt levels, company’s performance in comparison to its peers, their issue price compared to listed peers share price,” Pranav Haldea, MD at Prime Database Group.

He further said that a lot of new-age companies like Paytm, which do not have peers and are new to the investor eye, make it difficult to gauge their valuation.

Even SEBI chairperson Madhabi Puri Buch has addressed the need for more clarity and details on IPO pricing. She urged IPO-bound companies to abide by regulations and sought out for more transparency, and better disclosures.

The fact that shares of several companies have lost their ground post-listing raises the question on IPO pricing. SEBI chief in her recent speech said that the regulator has nothing to do with what price a company chooses for an IPO; but urged companies to disclose every piece of information before going public.

“If the company coming to IPO three or six months ago has placed its equity with some party (assume private party) at ₹100. And now it wishes to come to the market at ₹450. No problem, we have nothing to say in that. However, expect you to disclose to the investor what accounts for the difference between ₹100 and ₹450. Explain what has changed from the time you placed equity,” said Buch at FICCI’s ‘Annual Capital Markets Conference’ event last month.

“A good company with an expensive valuation makes it a bad investment, a bad company at a good valuation is also a bad investment,” said Haldea.

Another route to invest in a newly-listed IPO is through a mutual fund. Edelweiss MF has a fund named ‘Edelweiss Recently Listed IPO Fund’ that invests in quality IPOs that have either recently listed or are going to list to capture listing and post-listing gains.

Here are some parameters that the fund house run by Radhika Gupta, its MD & CEO goes through, before investing in the company.

• Try to invest in new-age businesses that are getting listed in the Indian market.
• We invest in companies across sectors with a bias towards small and mid-caps that promise growth.
• We do not invest in weak businesses that can be highly impacted by market shocks
• We maintain the portfolio’s liquidity to face undue market fluctuations and redemption pressures.

While some companies have destroyed investor wealth, there are also those which have trebled it. Defence equipment maker Paras Defence & Space Technologies is on top of the list as the stock price ran up 275% since its issue price. Its IPO was also one of the biggest blockbusters in the stock market as it gave stellar listing gains. The key is to choose the right IPO.

Here are the top 10 companies that made the most money for investors since listing.

SEE ALSO: Nifty50 valuations remain expensive, but experts are divided on India's growth prospects
Stock markets slide with the Rupee and weak Asian markets